How Much Debt Is Too Much? Gauging the Weight of Your Credit Card Debt

Americans carried a record amount of household debt into 2024, including a 16.6% increase in credit card debt.¹ If you currently have credit card debt, you may be trying to gauge how big of a hole you’re in. With varying financial circumstances and individual perspectives, the definition of excessive debt can differ greatly. This guide delves into the factors that determine when debt crosses the threshold from manageable to burdensome.

Understanding the factors 

The perception of debt is subjective and heavily influenced by personal financial situations, cultural norms, and socioeconomic factors. What may be considered a significant amount of debt for one person could be deemed manageable for another. Therefore, it's essential to consider the following contextual factors:

• Income level. Debt relative to income is a key indicator of its magnitude. A debt load that is manageable for someone with a high income may be overwhelming for someone with a lower income.
• Cost of living. The cost of living in different regions can vary significantly, affecting the amount of debt necessary to cover essential expenses such as housing, transportation, and healthcare.
• Financial goals. Individual financial goals and priorities also play a role in determining what constitutes excessive debt. For example, someone saving for retirement may be more averse to carrying debt than someone focused on building a business.
• Interest rates. High-interest debt can escalate quickly, making it more difficult to manage even relatively small balances. The impact of interest rates on debt affordability cannot be overstated.

Quantifying "a lot" of debt

While there is no universally agreed-upon threshold for what constitutes excessive debt, several benchmarks and guidelines can offer insight into whether debt levels are cause for concern. The first is the debt-to-income ratio, which compares total monthly debt payments to gross monthly income. A debt-to-income ratio exceeding 36-43% is often considered high  and may indicate overextended finances.

For revolving credit accounts such as credit cards, the credit utilization ratio—total credit card balances relative to credit limits—is an important indicator. Utilization rates above 30% can negatively impact credit scores and suggest a heavy reliance on credit.

Lastly, comparing debt levels to benchmarks such as national averages or recommended guidelines can provide additional context. However, it's essential to consider individual circumstances rather than relying solely on external standards. Certain signs and behaviors may indicate that debt has become unmanageable.

Exploring the signs of over-indebtedness

• Struggling to make minimum payments. Difficulty making minimum payments on debts, or relying on credit to cover basic expenses, suggests financial distress.
• Constantly increasing balances. Persistent accumulation of debt without progress towards repayment indicates a problematic cycle of borrowing.
• Stress and anxiety. Emotional distress related to debt, including anxiety and feelings of hopelessness, should not be ignored.
• Impact on lifestyle. Sacrificing essential needs or forgoing opportunities due to debt repayment obligations signifies a significant burden.

Determining what constitutes as "a lot" of debt is not a one-size-fits-all calculation but rather a nuanced assessment that considers individual circumstances, financial goals, and broader economic factors. By evaluating debt levels in context and recognizing signs of over-indebtedness, you can make informed decisions to manage debt effectively and regain financial stability. Ultimately, the goal is to strike a balance between leveraging debt responsibly to achieve goals and avoiding excessive financial burdens that impede progress toward long-term financial wellbeing.

General Electric Credit Union provides a wealth of resources to help you better understand credit and make borrowing decisions with confidence. From our Money Minutes blog to on-demand webinars, Cincinnati’s Best Credit Union has your back while you’re building or rebuilding your credit. For more intensive help, consider our Debt Management Assistance program. Our professionals will walk you through your options—like debt consolidation to a low-rate credit card—to determine the right approach for your situation.